A State Of Overbuild
The Grand Junction Free Press reports from Colorado. “Seven hours before the polls closed in Colorado, Sen. John McCain asked supporters at a noon rally Tuesday in Grand Junction to help him win the state. He also pledged to work on the nation’s housing situation. ‘I’m going to make sure we take care of the working people who are devastated by the excesses and greed and corruption of Wall Street and Washington,’ McCain said. ‘My friends, we have to fix our housing market, we’ve got to get home values up, keep people in their homes — that’s the American dream, and I’m going to protect it.’”
From Real Vail in Colorado. “There are some benefits to living in a town mostly made up of voluntarily disenfranchised voters (second, third and fourth homeowners). It only took a half hour to vote in Vail this morning, a town of under 5,000 permanent residents where 70 percent of the homes are owned by out-of-town residents. And some of those McMansions will no doubt be going on the market if Wall Street continues to crater and a few more CEO indictments are handed down.”
“Most of the voters in line were young resort workers who live in ‘affordable’ workplace housing, and one longtime election judge said Vail’s only polling place was as busy as she had seen it in her 30-plus years of volunteering. The Eagle County clerk was predicting close to 100 percent turnout for active voters.”
“Meanwhile, a columnist for the Vail Daily, Richard Carnes, urged people who were ‘too stupid’ to know the issues not to vote. His column ran under the charming headline, ‘If ignorant of issues, don’t vote in Eagle County.’”
From TVNZ. “I thought I’d hear it somewhere on the floor of the ballroom at the Arizona Biltmore. I had to ask the question and it was Joe the Cab Driver (real name Dan) who voted for McCain because he thought Obama lacked experience , who answered that yes, this was the election to lose if your were going to have to lose one.”
“Arizona is as good a place as you could want to see the housing bubble bursting and prosperity replaced with nervous penny-pinching and penury. With neighbouring Nevada, it has the highest rate of mortgage foreclosures in the United States.”
“As we drove back from McCain’s final Arizona rally, just hours before the dawn on election day, we stopped at a Circle K for gas and food. A nice woman named Kathy…explained expansively as only an American seems happy to do, all her woes: the construction downturn that has left her husband all-but unemployed as a tiler; a daughter with tens of thousands of dollars owing on a credit card that her newly unemployed husband knows nothing about; the neighbours from the upscale town of Anthem who now come in to ask her about shifts at the store.”
“‘There are five hundred house foreclosures here in town right now,’ she explains adding not a night passes lately without a repo man towing another new car stopping by for gas.”
“Arizona is built on growth, mostly construction and real estate speculation. In four days I’ve met only four people who were born here. The rest arrive with dreams and a debt, usually a no-deposit home loan. Fundamentally it is no different from what we’ve been seeing in our own housing market - just far more extreme and widespread and a dagger in the side of the world’s biggest economy.”
“It’s this broken economy which Barack Obama must now mend, so that he can hold on to a bankrupted title. The American people have foreclosed on the Republicans, but handed him perhaps the toughest job on the planet.”
The Arizona Republic. “Liquidation sales begin today as Circuit City Stores Inc. begins the process of closing its 13 retail outlets in metro Phoenix. Signs saying ‘Everything must go!’ are indicators of pressures many retailers suddenly feel from tight-fisted lenders as well as from consumers slamming the brakes on after years of splurging.”
“Around town on Tuesday, shoppers were talking about Circuit City and other retail cutbacks. Darrell Stapleton of Maricopa walked through Casa Paloma Shopping Center in west Chandler and looked around at 50 percent- and 60 percent-off signs in windows of apparel shops. ‘It’s the pits,’ he said. ‘The banks have money, but they won’t lend it.’”
“Ahwatukee retirees Barbara Lupia and Isabel Mackenzie said they believe stores that are closing probably should be out of business. ‘I think we are definitely over-retailed,’ Lupia said.”
“Phoenix Vice Mayor Peggy Neely, whose district includes Paradise Valley Mall, said she hears from constituents who worry about the community impact of empty stores: ‘They worry about blight. It can be a reflection on the neighborhood.’”
“Timothy James, an economist at Arizona State University, views the situation seriously. He thinks regional economic woes may make the retail slowdown continue longer here than in other places. ‘We are in a state of overbuild. There is too much retailing,’ James said. ‘And there is downward spiral in consumer confidence as people worry about their own particular prospects.’”
The Arizona Daily Star. “At first glance, this three-bedroom, two-bathroom home might seem like a steal for the listed price of $110,000. But in this small copper-mining community 60 miles east of the fringes of the Phoenix area, it’s more than many who live or work around here can afford. ‘Our economy is strong here — yes, copper has dropped lately — but there wasn’t the huge losses you see in the rest of the country,’ said Angela Antilla, a broker with Oak Realty in Globe.”
“Rick Reed is one buyer who wound up in Florence. He is selling a three-bedroom home with one and three-quarters baths here and bought a foreclosed home in Florence for $85,000, upgrading to five bedrooms and three baths. Antilla said a similar house around Globe would cost around $200,000. ‘We are getting a better house, a newer house and paying a lot less money,’ Reed said. ‘We couldn’t touch a house here.’”
“Reed said the new location also will help should he or his wife decide to work in the Phoenix area.
‘We’re going to commute for now and see how that plays out,’ he said. ‘But none of us are getting rich out here, so we also have options if we choose to relocate in the future.’”
In Business Las Vegas from Nevada. “In a seminar titled, ‘Getting Through the Hard Times - Coping With Real Estate Adversity,’ experts made it clear that basing any business strategy on hope of a quick rebound won’t help developers get through the tough times ahead.”
“There are more than 14,000 banked-owned homes in the pipeline, and no one knows for sure how many more are coming, said Larry Murphy, president of SalesTraq. When the number of foreclosures created in a month falls below the sales of foreclosed homes a rebound will be indicated, he said.”
“‘Nobody knows how many we are talking about,’ Murphy said. ‘You talk to banks, and they say they got lots of them. They don’t want to put them all on the market at one time. They are holding them back because if they dumped everything on the market, it would cause prices to fall even faster.’”
“Tom McCormick, president of Astoria Homes…called the recession of the late 1980s and early 1990s a vacation compared to what builders are going through today. ‘What we are seeing is the old model doesn’t work and the old model isn’t going to work,’ McCormick said.
“The market was so good during the boom that no matter what builders did they were successful, McCormick said. ‘So we did whatever was the easiest and whatever made us money the fastest. We got away from focusing on the consumers and giving them something that would be different and they would pay a premium for it,’ McCormick said.”
“When foreclosed homes haven’t been lived in and look no different from a new home, but is selling at a lower price, it’s hard to lure buyers, he said. ‘Those in the new-home business should be scared of what that means for our business,’ McCormick said.”
“Builders have exacerbated the problem by continuing to cut prices, McCormick said. Every time that happens, it sends a message to buyers to wait because prices may get even lower, he said. ‘Builders are saying I must compete with foreclosures and lower prices, but they are absolute fools if they don’t think banks will continue to lower prices to get them off the books,’ McCormick said.”
“In the end, all that will do is wipe out home values in the neighborhoods where they are selling and further increase foreclosures, he said.”
“At a time the new-home market remains weak, lowball appraisals are giving homebuilders another stumbling block in any sales rebound, according to the Southern Nevada Home Builders Association. Even buyers who are able to line up mortgages are finding that lenders are making them come up with a bigger down payment because appraisals are coming in lower than the home is selling for, says Monica Caruso, the association’s spokeswoman. Sales are falling through because of it, she says.”
“Even homes with upgraded amenities and features such as granite countertops are being unfairly downgraded, Caruso says. ‘You have people who are working and struggling and saved 20 percent on a down payment on prices they thought were reasonable, but it is not enough, based on the appraisals,’ Caruso says.”
The Review Journal from Nevada. “Applied Analysis …the Las Vegas-based business advisory firm, reported an average price of $524,725 an acre for 427 acres sold in the third quarter, down 73.9 percent from the same quarter a year ago. Pricing of nonresort property fell for the third straight quarter following a peak of $939,400 an acre in fourth quarter of 2007.”
“‘It’s a function of what’s happening in the local economy and the effects of this global financial crisis,’ said Applied Analysis principal Brian Gordon. ‘There’s a significant amount of investor concern in the market. I think there’s certainly potential for further devaluation in the coming quarters.’”
“Demand for newly constructed developments has slowed while speculative land investments have come to a near standstill. Also, lender repossessions have brought pricing levels down further. The recent downshifting from unsustainable conditions reported from 2004 to 2007 is now being reflected in demand indicators, Gordon said.”
“‘The new realities of the market have price points resetting and those that purchased property during the past two years are trying to make financial sense of their investments,’ he said.”
“The land market is divided between those with the ability to weather the storm and those with no choice but to sell, Applied Analysis founder Jeremy Aguero said. Investors with available capital are looking for deep discounts.”
“‘Some aggressive investors are even seeking to obtain vacant property for the mere value of infrastructure improvements, which is irrational even in the current economic environment,’ Aguero said. ‘We have long held the position that a correction in land prices was necessary. It is now well under way.’”
“A few Cosmopolitan condominium buyers who signed contracts as long as 3 1/2 years ago have been asking representatives of the Strip development to return their deposits after learning the project won’t be completed until the second quarter of 2010. No estimated closing date was ever given, however, on a series of signed purchase and sale agreements. Also, the agreements say the seller is ‘not liable for delays’ and any ‘delays will not permit buyer to cancel, amend or diminish any of the buyer’s obligations.’”
“Bill Lackey, a former real estate agent from California, said he began asking for his money back a few months ago when it became apparent the project would not be completed for a couple of years. ‘By the time they’re projecting that they’re even going to attempt to complete it, in pretty vague terms, the money will have been sitting (in escrow) for five years,’ said Lackey, who put in nearly $140,000 in deposit money in May 2005. ‘I thought now that the developer has put into writing that the project wouldn’t be ready until 2010, he’s admitting he’s in default.’”
“In letters to Lackey, Cosmopolitan attorneys say the project ‘is continuing and making significant progress’ and the ’seller has no intention of terminating the agreement or returning deposits.’”
The Las Vegas Business Press from Nevada. “Streamline Tower, one of the signature projects of downtown redevelopment, has become the latest condo tower to face the wrath of unhappy buyers. Forty-eight of them, who signed up for but never closed on approximately three dozen units, filed a federal lawsuit in early October to gain refunds on deposits they claim range from $30,000 to $90,000 and total more than $1 million.”
“U.S. District Court Judge Lloyd George turned down their request on Oct. 20 for a temporary restraining order to stop developer Streamline Tower LLC from pulling their deposits out of escrow accounts, but scheduled a Nov. 24 hearing on a temporary injunction. ‘The irreparable harm of which the (buyers) complain is conjectural at this point,’ George wrote.”
“‘It’s not unexpected in a down market for people to look anywhere and everywhere to get out of their sales and purchase agreements,’ said Dusty Allen, Streamline’s managing partner. ‘Unfortunately, I am unable to give them their money back.’”
“Property records show that only 27 of the 275 units have closed, with the last sale coming Aug. 1, even though 156 contracts had been signed during the pre-opening sales push that began in 2005. Like several other developers of Las Vegas high-rises, he blamed the constricted mortgage market for the sluggish sales, particularly because so many of the units would require jumbo mortgages. Prices run from $450,000 to $1.5 million.”
“Violetta and Nathan Mordukhay of Encino, Calif. agreed to pay $469,900 for a one-bedroom, 832-square-foot unit, but received two appraisals of $355,000 and $386,000 when applying for a loan. The appraisals were conducted in April, but prices generally have continued to deteriorate since then.”
“While city officials, led by Mayor Oscar Goodman, have touted the various condo projects as the keys to attracting residents to downtown, the Streamline case indicates that locals have shown little interest. Only nine of the 48 plaintiffs in the lawsuit live in Las Vegas, with 34 from California and the rest from as far away as Florida and Ohio. Many of them, such as real estate investor Aaron Flint of Temecula, Calif, put down a deposit with the idea of turning a profit rather than living in Las Vegas. Even though he never closed, he has listed his unit for sale in an attempt to recover at least some of his $70,000 down payment.”
“Streamline broke ground in November 2004, originally expecting to open about two years later. Had the developers stayed on course, they might have avoided their problems by coming on line while the market was still receptive. Instead, complications delayed the issuance of the temporary certificate of occupancy until last April, when the first unit closed. Streamline received its permanent certificate only last month.”
“Based on comparable sales at other projects in the area such as the Newport Lofts plus single-family homes in outlying areas, Gary Fisher, a real estate agent with (a) branch of Sotheby’s International, estimated that Streamline prices would have to drop about 40 percent to 50 percent to become competitive. Fisher represents three owners attempting to resell their units and was the Streamline sales and marketing director until earlier this year.”
“In addition, the largest among the entities that held a piece of ownership ceased operations on July 3, although it did not file for bankruptcy. ‘It’s a nice project, well built and well appointed,’ said Fisher, who has been an active downtown booster. ‘But they really need to have some people in there.’”
